20+ Differences between Call Option and Put Option (Explained)

The stock and trading world is huge, and its concepts are even huger. Everybody knows the meaning of trading stocks, bonds, cryptocurrencies, etc.

But most people do not know the meaning and significance of Options in the stock market. Options can be best described as derivative instruments that can be further categorized into two parts: Call and Put.

Key Differences

Call Option

When investors think that the prices of certain financial instruments will increase in the future, this Option lets those investors buy the concerned security at the current price or at a price already decided. Still, it must be done within a specific time frame (after prices rise).
It is concerned with buying financial securities.
It is concerned with an increase in prices.
It is believed to have a direct relationship with the stock market. This is largely because an increase in the prices of stocks in the stock market results in profit for those who have invested in Call Options.

Put Option

When investors think that the price of certain financial securities is going to decrease in the upcoming future, then this Option allows those investors to sell the concerned securities at the price that exists today or at a price that has already been decided before but within a particular time frame (after as and when prices fall).
It is concerned with the selling of financial securities.
It is associated with a decrease in prices.
It is believed to have an indirect or inverse relationship with the stock market. This is largely because an increase in the prices of stocks in the stock market results in a loss for those who have bought a Pull Option.

Table of Contents

Comparison Between Call Option And Put Option

Parameter	Call Option	Put Option
Meaning	This Option lets investors buy certain securities at a price that has already been decided or at a price that exists today within a specific time frame. Else, it can lead to the expiration of the contract.	This option lets investors sell certain securities at a price already decided or at a current price. But it must be done within a specific period, or the contract will expire.
Holders	People who hold these instruments are referred to as Call Optionsholders.	People who hold these instruments are referred to as Put Options holders.
Represents	Since these contracts allow investors to buy securities, these instruments represent an individual’s right to buy certain securities at a decided price.	Since these contracts allow investors to sell securities, thus, these contracts represent an individual’s right to sell certain securities at a price that has already been decided.
Expectations of investor	When people buy these contracts, they only have one expectation, i.e., an increase in the prices of the concerned securities.	When people buy these contracts, they only have one expectation, i.e., a decrease in the prices of the concerned securities.
Associated with what type of trade	Since these instruments allow investors to buy securities, they are concerned with buying securities.	Since these instruments allow investors to sell securities, they are concerned with the selling of securities.
Prices	These contracts come into work when the prices of the concerned securities actually increase, irrespective of the investor’s expectations.	These contracts come into work when the prices of the concerned securities actually decrease, irrespective of the investor’s expectations.
Relationship with the stock market	It is believed to have a direct relationship with the stock market. When the prices of the stock market rise, it results in the profit of the Call Options holders.	It is believed to have an inverse or indirect relationship with the stock market. When the prices of the stock market rise, the Put Options holder is lost.

Major Differences Between The Call Option And The Put Option

To understand the differences between a Call Option and a Put Option, it is essential first to understand what Options are.

What exactly are the Options?

These types of financial securities come in the category of derivatives instruments meaning these types of instruments act as contracts between two parties, typically buyer and seller, and derive the value from the values of securities that are already existing in the stock market.

As the name suggests, Options give investors a choice to either buy or sell various securities at a price already decided. When a person buys Options, it is called an Options contract.

What exactly is a Call Option?

Call Option can be best described as a right to buy. When individuals think that the prices of certain Stocks will increase in the future, they buy a Call Option. To buy this Option, a person generally has to pay a small fee in the form of a premium.

After a person holds a Call Option, he officially has a right to buy the concerned stocks at a price that has already been decided before or at a price that exists today within a specific time frame, or else it would expire.

Features of Call Option

It occurs when the future prices of certain stocks are expected to increase.
Buying this Option generally takes a small amount of fee in the form of a premium.
People who buy this Option are known as called Optionsholder.
This type of Option allows the concerned Optionsholder to buy the securities at a current price or at a price already decided. However, it should be noted that this process has to be done within a timeframe. Else it would lead to the expiration of the Options contract.
This option is associated with a direct relationship with the stock market.

What exactly is a Put Option?

Put Option can be best described as a right to sell. When individuals think that the prices of certain Stocks will decrease in the future, they buy a Put Option. Like a Call Option, people generally have to pay a small premium to buy this Option.

However, after a person holds a Put Option, he officially has the right to sell the concerned stocks at a price that has already been decided or at a price that exists today within a specific time frame, or else it would expire.

Features of Put Option

It occurs when the future prices of certain stocks are expected to decrease.
Buying this Option typically involves a small amount of fee in the form of a premium.
People who buy these options are known as Put Optionsholder.
This type of Option lets the concerned Optionsholder sell the securities at a price that exists today or at a price already decided. But this process has to be done within a specific time frame. Else, it would lead to the expiration of the Options contract.
This option concerns an indirect or inverse relationship with the stock market.

The Contrast Between Call Option And Put Option

Meaning

Call Option – This Option allows individuals to buy certain financial securities at a price already decided or at a price that exists today. It should be kept in mind that this process has to be done within a given timeframe, and if the prices actually rise, else it would lead to the expiration of the Options contract. People with these contracts are known as Call Options holders.

Put Option – This Option allows individuals to sell certain financial securities at a price already decided or at a price that exists today. Just like the Call Option, this contract must be fulfilled in the given timeframe as and when the prices fall, or else the contract will expire. People who hold these contracts are referred to as Put Option Holders.

Represents

The call Option allows investors to buy certain securities at a predetermined price. Hence, this Option represents an investor’s right to buy those securities at the already decided price.

Put Option allows investors to sell certain securities at a predetermined price. Hence, this Option represents an investor’s right to sell those concerned securities at the price that has been decided in advance.

Expectations and hope of investors

Call Option – Investors look to buy this Option when the prices of certain stocks are predicted to have increased in the upcoming future, and the same is their expectation. Hence, they constantly are hoping and looking for an increase in the future prices of the concerned stocks/securities.

Put Option – Investors looking to buy this Option when the prices of certain stocks are predicted to have decreased in the upcoming future and expect the same. Thus, they constantly are hoping and looking for a decrease in the future prices of the concerned stocks/securities.

Associated with what type of trade?

Call Option – Since this type of Option allows investors to buy securities at an already decided price, this type of Options contract is concerned with buying financial securities.

Put Option – Since this type of Option allows investors to sell securities at an already decided price, this type of Options contract is concerned with selling financial securities.

Prices

Call Option – This type of Options contract occurs only when the prices of concerned securities increase. It does not matter what the expectations and predictions of investors are. What matters is the actual prices of the securities.

Put Option – This type of Options contract occurs only when the prices of concerned securities decrease. The investors’ expectations regarding the securities’ prices do not matter until they fall.

Relationship with the stock market

Call Option – This type of Option is believed to have a direct relationship with the stock market. People who invest in these Options expect an increase in the future prices of the concerned securities. And, when the prices of the concerned securities actually increase, this results in profit for those investors. And that proves the direct relationship of Call Options with the stock market.

Put Option – This type of Option is believed to have an indirect or inverse relationship with the stock market. People investing in these Options hope for a decrease in the prices of the concerned securities. But when the prices of the stock market rise, it results in losses for those investors proving an inverse or indirect relationship of Put Options with the stock market.

CONCLUSION

Call Options and Put Options are two categories of Options instruments that are often confused with one another due to various similarities surrounding them. But despite all the similarities, both are very different.

The major difference between Call Options and Put Options is that the former represents an investor’s right to buy while the latter represents an investor’s right to sell.

FREQUENTLY ASKED QUESTIONS (FAQs)

Q1. What is meant by Options?

Options come into the category of derivatives instruments that act as a contract between two parties allowing them to buy or sell certain securities at a price already decided.

Q2. How do Call Options have a direct relationship with the stock market?

Call Options has a direct relationship with the stock market because those holding Call Options generate profit as the stock market rate rises.

Q3. How do Put Options have an inverse relationship with the stock market?

Put Options have an inverse relationship with the stock market because as the rates of stock markets rise, those holding Put Options generate losses.

Q4. What are the significant differences between Call Options and Put Options?

The major difference between Call Options and Put Options is that the former allows an investor to buy securities at a price that has already been decided if the prices increase. Whereas the former allows an investor to sell securities at a price that has already been decided if the prices actually decrease in the future.